Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Consider two local banks. Bank A has 100 loans outstanding, each
for $1.3 million, that it expects will be repaid today. Each loan has a
3% probability of default, in which case the bank is not repaid
anything. The chance of default is independent across all the loans.
Bank B has only one loan of $130 million outstanding, which it also
expects will be repaid today. It also has a 3% probability of not being
repaid. Calculate the following:
a. The expected overall payoff of each bank.
b. The standard deviation of the overall payoff of each bank.
a. The expected overall payoff of each bank.
The expected overall payoff of Bank A is $
decimal places.)
million. (Round to two
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